Companies strive & survive on their ability to meet financial/cash obligations when due. Cash Flow is the central core to successful business management. Currently, transactions are recorded as they occur without regard to the payment of cash. This is done to properly match revenue and expense transactions in the same accounting period. This accrual method of accounting is used by most companies. Transactions are transformed to statements i.e. Balance Sheet & Income Statement using this accrual accounting method. Once prepared accrual-based transactions must be converted to sources and uses of funds i.e. cash in and cash out as indicated on the Cash Flow Statement prepared after the fact.
This after the fact cash consideration does not lend itself to proper cash planning. COVID-19 made clear the essential need to plan for and manage cash. Cash has been the central theme of company survival during COVID-19. Traditional norms have been destroyed and companies must re-imagine their processes to ensure the availability of cash. This requires cash flow planning and managing risk associated with not having sufficient cash to meet obligations when due.
We plan for revenue which eventually become cash receipts. Similarly, we plan for expenses as incurred to produce goods and services provided to customers on an accrual basis. Revenues & Expenses can be summarily managed through Accounts Receivable & Accounts Payable. They can also be planned through Accounts Receivable & Payable. Companies should be able to anticipate/plan for the conversion of Accounts Receivable to cash. Likewise, companies should not only plan for the expenditure of funds through Accounts Payables but also the most efficient way to make cash payments to maximize cash flow management.
All of this requires real time actions in both planning and execution of cash flow to minimize risks associated with cash flow i.e. not meeting obligations when they become due
My Webinar CONGROL EXPENSES & CASH BY UNITING ACCOUNTS PAYABLE & RECEIVABLE WITH TECHNOLOGY addressesthe control of costs & cash in real time
